Construction Contract Issues in Nebraska

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A brief primer on the most common construction contract issues in Nebraska.

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Construction Contract Issues in Nebraska

  1. 1. CONSTRUCTION CONTRACT ISSUES IN NEBRASKA PRESENTER: CRAIG DIRRIM, PARTNER
  2. 2. PROJECT ACQUISITION AND CONTRACT FORMATION
  3. 3. WHAT IS THE SCOPE OF “WORK” One of the best and most recent construction law treatises defines “scope” as follows: “The parameters of contract “scope” are defined by the contract itself and its express and implied terms and conditions, interpreted consistent with trade custom and practice, as circumscribed by public policy considerations and by legal excuses for nonperformance.”
  4. 4. THE CONSTRUCTION CONTRACT Variables That Affect the Contract:  Competitive bid vs. negotiation  Status of design  Relationship of the parties  Structure of the project  What “work” is the contractor to perform?  Changing market conditions
  5. 5. THE CONSTRUCTION CONTRACT Methods of Pricing:  Fixed Price/Lump Sump  Unit Price  Cost Plus/Force Account
  6. 6. THE CONSTRUCTION CONTRACT Problems with Construction Contracts:  Boilerplate  Disregarded  One-sided  Conflicting  Not maintained  Lacking in legal review  Fail to address major issues
  7. 7. TOP TEN DANGER SIGNS FOR A PROJECT
  8. 8. TOP TEN DANGER SIGNS FOR A PROJECT Limited Budget - Owner is short of extra cash for extra work Limited Time - Owner can’t afford to extend project completion even in the face of unforseen conditions Incomplete Design - When the final design hits the work it may include unpleasant surprises First Time Owner - The project is novel to the owner who does not know what to expect First Time Contractor - The project is novel to the contractor who lacks the secrets experience brings
  9. 9. TOP TEN DANGER SIGNS FOR A PROJECT First Time Designer - The project is novel to the designer who will learn as the project is completed Multiple Primes - Coordination of independent entities becomes a significant problem Soft Subs - Inexperienced, undercapitalized, overextended subs with or without design responsibility Killer Contracts - Unreasonable tough provisions may mask the owner’s own deficiencies No Construction Management - Owner does not hire experienced, capable construction management and does not pay the prime contractor to do it
  10. 10. NEGOTIATION OF CONSTRUCTION CONTRACTS
  11. 11. NEGOTIATION OF CONSTRUCTION CONTRACTS Make a record of the negotiations Particular attention should be afforded the definition of the scope of the project Incorporate into the contract the actual documents that define the scope and nature of the work Produce and sign the contract documents on time, in advance of the work Avoid unreasonable provisions
  12. 12. PRE-CONTRACT MEETINGS Document What Was Said Define the Project Describe the Construction Commitments
  13. 13. MAKE YOUR AGREEMENT MATCH YOUR UNDERSTANDING
  14. 14. UNDERSTANDING THE CONTRACT Remember - don’t get angry, get with it: Everything is negotiable
  15. 15. KILLER CONTRACT PROVISIONS
  16. 16. KILLER PROVISIONS Short Notice and Claim Submission Provisions Claim Waivers and Releases with Pay Applications Lien Waivers No Damages for Delays Pay-if-Paid One-sided Dispute Resolution No limits on Consequential Damages High or Uncapped Liquidated Damages Scheduling of Work Coordination of Work of Others Default or Convenience Terminations Broad Form Indemnification Agreements
  17. 17. SHORT NOTICE PROVISIONS “No allowance for an extension of time for any cause whatsoever shall be claimed by, or granted to, [Contractor] unless [Contractor] shall have made written request upon [Owner] for such extension within forty – eight (48) hours after the event giving rise to such request…”
  18. 18. ABUSIVE NOTICE AND CLAIM SUBMISSION PROVISIONS Claim Submission: For Claims vs. Prime: The Subcontractor shall, within ten (10) days after such dispute arises, submit its claim, in writing, to Contractor attaching all supporting documentation. Should additional documentation or information be requested by Contractor, the Subcontractor shall provide such documentation and/or information promptly.
  19. 19. ABUSIVE NOTICE AND CLAIM SUBMISSION PROVISIONS Claim Waiver: Failure by Subcontractor to deliver any claim for alleged damages to Contractor within the time limits set forth in this Section 21 and/or to provide the required damage amounts and other specific information and supporting documentation shall constitute a waiver and estoppel of Subcontractor’s rights with respect to such claim for alleged damages.
  20. 20. CLAIM AND LIEN WAIVERS Contractor for itself and as agent for all its suppliers, [Contractor]s, and laborers, hereby irrevocably and forever waives any and all rights arising under the mechanic’s lien or construction lien laws applicable to any labor, materials, equipment, or services provided pursuant to this Contract or any changed or extra work performed by Contractor in connection with the Project. Further, Contractor shall indemnify and hold Owner harmless from any and all claims of Contractor or others claiming through Contractor arising under or pursuant to the mechanic’s lien or construction lien laws applicable to the Project.
  21. 21. CLAIM AND LIEN WAIVERS Contractor for itself and as agent for all its suppliers, [Contractor]s, and laborers, hereby irrevocably and forever waives any and all rights arising under the mechanic’s lien or construction lien laws applicable to any labor, materials, equipment, or services provided pursuant to this Contract or any changed or extra work performed by Contractor in connection with the Project. Further, Contractor shall indemnify and hold Owner harmless from any and all claims of Contractor or others claiming through Contractor arising under or pursuant to the mechanic’s lien or construction lien laws applicable to the Project. …hereby irrevocably and forever waives any and all rights arising under the mechanic’s lien or construction lien laws… …Contractor shall indemnify and hold Owner harmless from any and all claims…
  22. 22. “Article 5.4 provides: The [Contractor] acknowledges that the Price is based on the fact that [Owner] is not liable, absent actual fraud, for any damages or costs due to delays, accelerations, impact, non-performance, interferences with performance, suspension or changes in the performance or sequence of the [Contractor]’s Work, even if [Owner] wrongfully denies an extension of time to the [Contractor]. Thus, in no event absent actual fraud shall [Owner] be liable to the [Contractor] for any damages caused by delay, acceleration, interferences, suspension, non-performance or changes in the sequence of performance or impact upon or with the work of the [Contractor]. [Owner] shall have the right at any time, to delay, accelerate or suspend the commencement or execution of the whole or any part of the Work, or vary the sequence or performance thereof, without compensation to the [Contractor] other than extending the time for completing the [Contractor]’s Work for a period equal to such delay or suspension.
  23. 23. “Article 5.4 provides: The [Contractor] acknowledges that the Price is based on the fact that [Owner] is not liable, absent actual fraud, for any damages or costs due to delays, accelerations, impact, non-performance, interferences with performance, suspension or changes in the performance or sequence of the [Contractor]’s Work, even if [Owner] wrongfully denies an extension of time to the [Contractor]. Thus, in no event absent actual fraud shall [Owner] be liable to the [Contractor] for any damages caused by delay, acceleration, interferences, suspension, non-performance or changes in the sequence of performance or impact upon or with the work of the [Contractor]. [Owner] shall have the right at any time, to delay, accelerate or suspend the commencement or execution of the whole or any part of the Work, or vary the sequence or performance thereof, without compensation to the [Contractor] other than extending the time for completing the [Contractor]’s Work for a period equal to such delay or suspension. …[Owner] is not liable, absent actual fraud… …delays, accelerations, impact, non-performance, interferences with performance, suspension or changes in the performance or sequence… …even if [Owner] wrongfully denies an extension of time to the [Contractor]. [Owner] shall have the right at any time, to delay, accelerate or suspend the commencement or execution of the whole or any part of the Work, or vary the sequence or performance thereof, without compensation to the [Contractor]…
  24. 24. PAY-IF-PAID PROVISION Risk of Non-Payment by Owner: Receipt of payment by Contractor from the Owner is a condition precedent: − to the right of Subcontractor to receive payment from Contractor, unless the failure to have received payment from the Owner shall have been caused solely by the fault of Contractor; and − to the Subcontractor’s right to make any claim against Contractor ’s payment bond, if a payment bond is posted for the Project.
  25. 25. ONE-SIDED DISPUTE RESOLUTION “Limitation of Issues: The [Contractor] acknowledges that should a dispute proceed pursuant to this Section, then the only issues that the [Contractor] may raise in such proceedings are those that were specifically included in its written claim submitted in accordance with Section 34.2. Failure to specifically describe an issue in the written claim within the time limits provided constitutes a waiver of that claim and shall preclude the [Contractor] from raising such claim in any court or arbitration proceedings. Should any dispute between [Owner] and the [Contractor] proceed to arbitration or to court, that forum shall award to the prevailing party all of its attorney’s fees, disbursements or costs as defined in Section 33.6 incurred in connection with the prosecution or defense of the dispute. Pending final resolution of any dispute, the [Contractor] shall continue to fulfill all of its obligations under this Contract.”
  26. 26. ONE-SIDED DISPUTE RESOLUTION “Limitation of Issues: The [Contractor] acknowledges that should a dispute proceed pursuant to this Section, then the only issues that the [Contractor] may raise in such proceedings are those that were specifically included in its written claim submitted in accordance with Section 34.2. Failure to specifically describe an issue in the written claim within the time limits provided constitutes a waiver of that claim and shall preclude the [Contractor] from raising such claim in any court or arbitration proceedings. Should any dispute between [Owner] and the [Contractor] proceed to arbitration or to court, that forum shall award to the prevailing party all of its attorney’s fees, disbursements or costs as defined in Section 33.6 incurred in connection with the prosecution or defense of the dispute. Pending final resolution of any dispute, the [Contractor] shall continue to fulfill all of its obligations under this Contract.” …the only issues that the [Contractor] may raise in such proceedings are those that were specifically included in its written claim… …waiver of that claim and shall preclude the [Contractor] from raising such claim in any court or arbitration proceedings. Pending final resolution of any dispute, the [Contractor] shall continue to fulfill all of its obligations under this Contract.”
  27. 27. ONE-SIDED DISPUTE RESOLUTION “In the event the matter is submitted to a court, [Owner] and [Contractor] hereby agree to waive their right to trial by jury and covenant that neither of them will request trial by jury in any such litigation.”
  28. 28. NO LIMITATIONS ON CONSEQUENTIAL DAMAGES “Damages for Delay: Contractor shall be liable to [Owner] for all damages, including any liquidated damages payable to Owner for delays caused in whole or in part by Contractor or Contractor’s employees, agents, Subcontractors, material suppliers or any other person or entity for whose acts Contractor may be liable. In the event damages incurred by [Owner] are caused both by Contractor and another entity for whose acts Contractor is not liable, [Owner] shall have the right to reasonably apportion said damages among the responsible parties, and such apportionment shall be binding on the Contractor.”
  29. 29. NO LIMITATIONS ON CONSEQUENTIAL DAMAGES “Damages for Delay: Contractor shall be liable to [Owner] for all damages, including any liquidated damages payable to Owner for delays caused in whole or in part by Contractor or Contractor’s employees, agents, Subcontractors, material suppliers or any other person or entity for whose acts Contractor may be liable. In the event damages incurred by [Owner] are caused both by Contractor and another entity for whose acts Contractor is not liable, [Owner] shall have the right to reasonably apportion said damages among the responsible parties, and such apportionment shall be binding on the Contractor.” …[Owner] shall have the right to reasonably apportion said damages among the responsible parties, and such apportionment shall be binding on the Contractor.”
  30. 30. HIGH OR UNCAPPED LIQUIDATED DAMAGES – WHAT TO LOOK FOR: “Both parties agree that each Milestone Date in which [Contractor] shall fail to meet the date as stated in clause 47.1 that [Contractor] shall be subject to Liquidated Damages at a rate of $3,000 per day from day 1 through 7 and $10,000 per day for each day thereafter. It was also agreed by the parties that at no time shall [Contractor] be responsible for more than $25,000 per day for Liquidated Damages for a combination of missed Milestones. Furthermore it was agreed that Liquidated Damages shall be limited to thirty percent (30%) of the Contract Price. Both parties acknowledge that liquidated damages shall be the Owner’s sole remedy for any schedule delay caused by [Contractor].”
  31. 31. HIGH OR UNCAPPED LIQUIDATED DAMAGES – WHAT TO LOOK FOR: “Both parties agree that each Milestone Date in which [Contractor] shall fail to meet the date as stated in clause 47.1 that [Contractor] shall be subject to Liquidated Damages at a rate of $3,000 per day from day 1 through 7 and $10,000 per day for each day thereafter. It was also agreed by the parties that at no time shall [Contractor] be responsible for more than $25,000 per day for Liquidated Damages for a combination of missed Milestones. Furthermore it was agreed that Liquidated Damages shall be limited to thirty percent (30%) of the Contract Price. Both parties acknowledge that liquidated damages shall be the Owner’s sole remedy for any schedule delay caused by …at no time shall [Contractor] be responsible for more than $25,000 per day for Liquidated Damages for a combination of missed Milestones. …limited to thirty percent (30%) of the Contract Price. …Owner’s sole remedy for any schedule delay…
  32. 32. SCHEDULING OF WORK “The following shall apply to the prosecution of the Work by the contractor and shall be performed or provided by the contractor at no additional cost to the Owner: The contractor shall prosecute the Work at all times in accordance with the Construction Schedule established by the Owner, as the same now exists or may from time to time hereinafter be revised by the Owner in its sole discretion, and shall complete the Work, including all inspections, within the “Working Days” as more particularly identified and defined in the Construction Schedule.”
  33. 33. SCHEDULING OF WORK “The following shall apply to the prosecution of the Work by the contractor and shall be performed or provided by the contractor at no additional cost to the Owner: The contractor shall prosecute the Work at all times in accordance with the Construction Schedule established by the Owner, as the same now exists or may from time to time hereinafter be revised by the Owner in its sole discretion, and shall complete the Work, including all inspections, within the “Working Days” as more particularly identified and defined in the Construction Schedule.” …at no additional cost to the Owner: …in accordance with the Construction Schedule established by the Owner… …may from time to time hereinafter be revised by the Owner in its sole discretion…
  34. 34. COORDINATION / REPORTING REQUIREMENTS Coordination: Subcontractor shall coordinate its operations with all other contractors, subcontractors and trades working on the Project. Before beginning its Work and during the duration of its Work, Subcontractor shall perform the requirements of Section 13.1 including written reports to Contractor. Failure by Subcontractor to report any such defective or uncompleted work by others shall constitute a waiver and estoppel of any claim by Subcontractor for any damage or for any claim for an extension of time arising out of such defective or uncompleted work. Further, Subcontractor shall be liable to Contractor for any damage caused Contractor by Subcontractor’s failure to report any such defective or uncompleted work by others.
  35. 35. COORDINATION / REPORTING REQUIREMENTS Coordination: Subcontractor shall coordinate its operations with all other contractors, subcontractors and trades working on the Project. Before beginning its Work and during the duration of its Work, Subcontractor shall perform the requirements of Section 13.1 including written reports to Contractor. Failure by Subcontractor to report any such defective or uncompleted work by others shall constitute a waiver and estoppel of any claim by Subcontractor for any damage or for any claim for an extension of time arising out of such defective or uncompleted work. Further, Subcontractor shall be liable to Contractor for any damage caused Contractor by Subcontractor’s failure to report any such defective or uncompleted work by others. Failure by Subcontractor to report any such defective or uncompleted work by others shall constitute a waiver and estoppel of any claim. Subcontractor shall be liable to Contractor for any damage caused Contractor by Subcontractor’s failure to report any such defective or uncompleted work by others.
  36. 36. DEFAULT OR CONVENIENCE TERMINATIONS “In the event any termination of Contractor for cause under this Contract is later determined to have been improper, the termination shall be automatically converted to a termination for convenience, and the Contractor shall be limited in its recovery strictly to the compensation provided for in this Section.”
  37. 37. INDEMNIFICATION AGREEMENTS The Contractor shall indemnify, hold harmless and defend the Owner and Architect from and against any and all claims, causes of action, suits, losses, costs or damages including but not limited to attorney’s fees arising out of or resulting from performance of the work. The Contractor hereby expressly indemnifies the Owner, and Architect for the consequences of any negligent act or omission, including the sole negligence, of the Owner, Architect, their agents, servants, and/or employees.
  38. 38. FORUM SELECTION/CHOICE OF LAW Example: Any dispute arising out of or related to this Subcontract . . . shall be settled by litigation in a court of law venued in the appropriate state or federal court in Hennepin County, Minnesota, which court the parties agree has jurisdiction over and is the most convenient forum for the resolution of said dispute.
  39. 39. FORUM SELECTION/CHOICE OF LAW Model Uniform Choice of Forum Act Neb. Rev. Stat. §§ 25-413 to 25-417: (1) the court has subject matter jurisdiction (2) Nebraska is a reasonably convenient place for trial of the action; (3) the forum selection provision was not obtained by misrepresentation, duress, the abuse of economic power, or other unconscionable means; and (4) service of process on the Defendant was not defective.
  40. 40. SETOFF (ON OTHER PROJECTS) Example: Buyer may deduct from any amounts due or to become due to the Seller pursuant to this Purchase Order, any sums due or to become due to the Buyer from the Seller or any of the Seller’s affiliates, predecessors in interest, previous affiliates, or previous ownership interests, whether or not said sums are in any way related to this Purchase Order or Project.
  41. 41. TERMINATION (CONVERSION CLAUSES) Termination for default (T for D) Termination for convenience (T for C) Limitation of remedies Termination conversion clauses
  42. 42. TERMINATION (CONVERSION CLAUSES) Example: If Contractor’s termination of Subcontractor is based upon a reason that is subsequently determined to not be a default of this Subcontract, such termination shall instantaneously and automatically be deemed a termination for the convenience of Contractor.
  43. 43. BROAD FORM INDEMNITY Example: The subcontractor shall indemnify, hold harmless and defend the contractor, owner and architect from and against any and all claims, causes of action, suits, losses, costs or damages including but not limited to attorney’s fees arising out of or resulting from performance of the work. The subcontractor hereby expressly indemnifies the contractor, owner, and architect for the consequences of any negligent act or omission of the contractor, owner, architect, their agents, servants, and/or employees.
  44. 44. BROAD FORM INDEMNITY Void as against public policy -- Neb. Rev. Stat. § 25-21-187 The statute does not apply to construction bonds or insurance agreements.
  45. 45. INCORPORATION BY REFERENCE/ORDER OF PRECEDENCE Example: The “Subcontract Documents” consist of (1) Exhibit E, any modifications to the Standard Form Subcontract Agreement; (2) Exhibit A; (3) Exhibit C; (4) Exhibit B . . . In the event of any conflicts in the Subcontract Documents, the provisions shall govern in priority in the order listed in this provision.
  46. 46. THANK YOU! CRAIG DIRRIM 301 SOUTH 13TH STREET, SUITE 500 LINCOLN, NE 68508 (402) 437-8500 CDIRRIM@WOODSAITKEN.COM

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